UK is lagging behind the Nordics and Baltic countries in credit management says

 Bert van der Zwan, CEO Onguard

Britain’s late payment culture is leaving businesses with millions of pounds of unpaid bills. This in turn is leaving many of them short of working capital, impacting their ability to innovate and grow.

Why is this, when the country is regarded a front-runner in so many other aspects of business, a champion of fintech and an eager early adopter of other new technologies?

As CEO of Onguard, an Amsterdam-based fintech specialising in streamlining the order-to-cash process, I’ve observed this attitude for a good number of years now and I am still confused why the UK is behind the rest of Europe. In a study conducted a few years ago, more than 62% invoices submitted by UK firms were paid late, compared with just 40% in other European countries.

UK businesses are well behind the Nordics and Benelux who have embraced the technology – and trailing behind France and Germany too. As a result, businesses in these countries are richer in capital and save on staff numbers in their finance department. One of our customers estimated that its credit management software saved it £5 million every year. This enabled it to finance an ambitious mergers and acquisitions programme. Without this working capital it would have had to take on expensive equity or take out bank loans.

Is it because, in the UK, late payments is seen as a problem for small businesses only? It’s true that some large corporates are taking smaller businesses to the brink by holding onto invoices without paying for as long as they can get away with it. Yet, YouGov research shows that 63% of UK medium-sized business receive late payments at least once a month, compared to 40% of small businesses. According to this study, the impact of late payments can lead to a reduction innovation spend, the inability to pay salaries and ultimately, redundancies.

So are UK businesses more risk averse? Hardly; credit management software has been available for 25 to 30 years so we aren’t talking about early adoption. Besides the UK has been quick to adopt other fintech solutions and are, in fact, often seen as the bridge between the US and mainland Europe, encouraging a forward-looking approach to software.

All too often, the problem lies with a reluctance to part with Microsoft Excel spreadsheets. Excel is a powerful spreadsheet program that allows users to work wonders with raw data. The issue with Excel is that it is often the wrong tool for the job that credit managers are trying to do.

After all, spreadsheets are ultimately designed for number crunching, not for storing masses of details about customers; their contact details; sales records; payment history and outstanding balances. It’s a problem that tends to get worse as the organisation grows.

Using Excel for tracking credit management when the business is small is certainly convenient and it may even work adequately for a little while. Typically, however, it will not take long for the spreadsheet to become weighed down by complexity and this can lead to it becoming slow with errors inevitably creeping into data and functions.

When businesses are in that expansion phase, spreadsheets can be a source of frustration and aggravation, often resulting in slow processes and mistakes as their capabilities are stretched almost to breaking point. Specialist software can help here allowing credit managers to maintain control and ensure even tedious tasks are completed efficiently and to a high standard.

But, when UK firms do use technology for credit management, it’s often part of a larger ‘one size fits all system’ from mainstream vendors such as Microsoft, SAP or Oracle. But, specialised systems are more highly configurable enabling sophisticated data management and segmentation to help prioritise sectors and minimise risk. Segmentation is already strong in many B2C environments to define how statements and invoices are sent and the type of debtor a company is dealing with. For example, a statement sent via social media could prompt payment from a twenty-year old, but may not even register with an octogenarian.

Likewise, segmentation used by B2B companies can help in selecting the most effective way of communicating with the late-paying company. It can also help pinpoint the types of companies most likely not to pay on time and divide non-payers into those having temporary cash-flow issues, the deliberate late-payers and the simply inefficient. With this knowledge, accounts departments are aware of the risks and can focus resources on collecting these payments, rather than being heavy-handed with all debtors, including those who have always met the payment deadline before and are otherwise loyal and valued customers.

So will it be a case of better late than never for UK businesses and credit management? The chance to improve both workflow and cashflow is too compelling to imagine otherwise.

Most UK businesses are far from complacent about the future and the right solution will help enhance their financial security. Their concerns may have been focused elsewhere for a while, but the opportunity is still ready and waiting.